Stavins on Renewable Energy Standards

Less effective, more costly, but politically preferred to cap-and-trade?

Robert Stavins is Director of the Harvard Environmental Economics Program. This is reposted from his blog.

The new Congress is beginning to consider various alternative energy and climate policies in the wake of last year’s collapse in the U.S. Senate of consideration of a meaningful, economy-wide CO2 cap-and-trade scheme. Among the options receiving attention are various types of renewable portfolio standards, also known as renewable electricity standards or clean energy standards, depending upon their specific design. These approaches, which focus exclusively on one sector of the economy, would be less effective than a comprehensive cap-and-trade approach, would be more costly per unit of what is achieved, and yet – ironically – appear to be much more attractive to some politicians who strenuously opposed cap-and-trade.

True enough, these standards can be designed in a variety of ways, some of which are better and some of which are worse. But the better their design (as a CO2 reducing policy), the closer they come to the much-demonized cap-and-trade approach.

The political preference for RES over cap-and-trade is absurd only if you ignore the fact that different segments of the population (and therefore different populations) like the RES for different reasons. There is a significant block of folks who (for better or worse) think the key metric is “will this policy produce a tangible and visible increase in employment” – and the RES experience in the states shows that these policies have such an effect.

At the end of the day the most effective, and most cost-effective, policy packages will combine broad carbon policy (like cap and trade) with policies that produce clear and focused gains in areas like renewable energy and efficiency – but if we can only get one part of the package now instead of the whole thing why wouldn’t we?

Forget Cap-and-trade. Conservatives have successfully branded it as cap-and-tax and an economy killer. However, the CLEAR Cap-and-Dividend bill below is co-sponsored by a Republican and many environmentalists like it much better than cap-and-trade.(I hope these bills are still around.)

2. Forget a national RPS for the time being. It mandates more RE – politically bad to some. Support a national feed in tariff (FIT) which some say promotes renewable energy (and jobs!) much better than a national RPS. Germany, Ontario and other use a FIT. It incentivizes individuals and small companies to become RE electric production entrepreneurs. Here is a bill:
On July 27, US Congressman Jay Inslee (D-WA) introduced the Renewable Energy Jobs & Security Act, H.R. 5883. The bill calls for Renewable Energy Payments (also called feed-in tariffs) to be paid to producers of clean renewable energy. http://www.allianceforrenewableenergy.org/2010/07/renewable-energy-jobs-security-act-introduced-by-rep-jay-inslee.html

The carbon price approach is a very expensive way to driving climate action. Problem is that it puts a price on dirty. Consider a case that uses a carbon tax of $10/tonne CO2 to drive down emissions. After emissions have been reduced by 10% 90% of the original tax will still have to be paid. So at this point the carbon tax/tonne emission reduction will have dropped to a very high $90/tonne, which will flow on into the selling price. Alternative approaches that do not depend on putting a price on dirty avoid this price inefficiency.
Unfortunately, economists seem to be obsessed with the idea that artificial price increases are the answer to everything. Australia has successfully converted to high efficiency light globes by using regulations that banned the sale of low efficiency globes after a certain date. (The result is a power saving of 80%.) Imagine how little would have been achieved on the basis of the price signal coming from a 80 watt/globe hour price signal?

The point is probably more that some people think that they can profit from Renewable Energy Standards. The problem with that is that the same rich corporations will own the renewable energy machinery as own the coal fired power plants now.